But choosing ‘ethical’ firms to invest in is not always as simple as ‘good’ or ‘bad’
Ethical bank Triodos is branching out into green investment with the launch of two funds. People can choose between supporting companies doing innovative work in the field of sustainability – combating climate change, encouraging healthy living and so on – or household-name brands delivering “superior social and environmental performance”.
Both funds can be held within a stocks and shares Isa, and mean more choice for those looking to invest their cash in a socially responsible way. However, Triodos looks set to spark a debate over just how “ethical” some of these companies are after it emerged that one of the funds invests in several major names that have been sharply criticised for alleged tax avoidance, including Google and Starbucks.
Netherlands-based Triodos Bank has been operating in the UK for 18 years and describes itself as “a world leader in ethical and sustainable banking”. However, this is the first time it has offered stock market-linked investments to UK small investors.
Of Triodos’s two new funds, Sustainable Pioneer is the greenest – it is a global fund investing in smaller and medium-sized companies involved in sectors such as sustainable energy and medical technology. Only those companies deriving more than 50% of their revenue from climate protection, healthy people or clean earth themes are eligible. Firms that are way ahead of the pack on corporate social responsibility will also make it in. Companies in its portfolio include beauty products firm L’Occitane, US-based natural and organic food company Annie’s and Smith & Nephew – Europe’s leading maker of artificial hips and knees.
Triodos Sustainable Equity is arguably a more “mainstream” fund, investing in companies “that combine a strong financial position with solid social and environmental performance”.
It includes plenty of the sorts of companies you might expect – natural and organic food retailer Whole Foods Market, Japan-based bicycle parts manufacturer Shimano, Canadian National Railway and several solar firms – but also some that might raise eyebrows, such as sportswear brands Adidas and Nike, car manufacturers BMW and Volkswagen, drinks giant Diageo, and a couple of banks, including Dutch group ING and National Bank of Canada.
The fund’s biggest holding is Google, whose chairman Eric Schmidt was this week defending the search engine’s tax avoidance policies after it paid just £6m in corporation tax in the UK in 2011. The second and ninth largest holdings are telecoms giant Vodafone and coffee chain Starbucks, two of the most high-profile companies caught up in the tax avoidance accusations.
But Triodos says both funds operate strict minimum standards on a variety of issues, with zero tolerance on arms, nuclear power, hazardous materials and “unconventional” oil and gas.
The funds have been available in Europe for several years and, performance-wise, the Sustainable Equity fund has done well of late, delivering a return of 14.3% over the past year. It has outperformed its benchmark over one and three years. Sustainable Pioneer delivered a return of 9.2% over the past year, but has underperformed over one, three and five years (these figures relate to a euro share class that won’t be available to UK small investors).
Until 28 June, Triodos is offering a 1% discount on the funds’ initial fee, taking it down to 3%, after which it will revert to 4%. The annual management charge is estimated as 1.25% for Sustainable Pioneer and 1% for Sustainable Equity, and the minimum investment is £1,000 per fund (there is no monthly savings option).
However, some may be disappointed to learn that Triodos has decided to launch its funds on a “direct only” basis which means that, for the time being at least, they won’t be available via online fund supermarkets and platforms operated by companies such as Hargreaves Lansdown, where you can buy and manage funds at low cost. You can go on to the bank’s website and request an application pack.
The good news, though, is that you can invest tax-free in a Triodos ethical stocks and shares Isa. If you haven’t used your Isa allowance for this year, you can invest up to £11,520 in 2013/14.
There are dozens of ethical funds to choose from. If you are thinking of taking the plunge you need to decide on your personal priorities. Secondly, do you want to pay a financial adviser to help, or do you feel confident enough to do it yourself? The Ethical Investment Association website (ethicalinvestment.org.uk) allows you to find specialist advisers in your region.
Traditional ethical funds typically use a combination of negative screens (to eliminate arms manufacturers etc) and positive screens to favour businesses with a good record on corporate social responsibility or that are involved in environmentally friendly or low-carbon industries. But, as the ongoing tax avoidance debate has shown, some would say it is not always possible to put a company into a simple “good” or “bad” box.
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